Talk to Californian Brewers Highlights Limits of Giving Away Free Beer

by Drew Kaplan · Published April 14, 2016 · Updated April 14, 2016

Roger Hanney speaking about the Tied House laws

There is a lot that brewers and breweries cannot do. Navigating the legality of what one can and cannot do is important in any industry, but brewers in California really need to understand their limits. This was the focus of a talk given this week in Long Beach at a conference for Californian brewers . Speaking at the California Craft Brewers Association‘s spring conference in Long Beach, Roger Hanney, of Hanney & Associates, ably delivered “ABC Essentials – Understanding ABC Regulations”, providing some background and helpful education about key laws for those in the brewing industry.

Hanney pointed out a seeming clash of ideological bent between the laws regarding brewing and those in the industry, Hanney observed that “there’s a real strong libertarian bent among you all,” but, he said, “you have to stop and think about it, folks.” Hanney pointed out to the brewers “how serious is it that you understand and abide by the laws that we have in this state; otherwise, you may be without” a brewing license. In California, the laws are written that one applies for a license and one can get the privileges to brew beer, but it is not a right.

In the early part of Hanney’s talk, he focussed in on the Tied House laws, since they the foundation of functioning as a brewer is complying with rules and regulations. As such, “it’s particularly important for you to know what the Tied House laws are about.” However, the Tied House laws can be particularly tricky, not to mention hampering, as they will “probably nix most of your marketing.” The Tied House laws “basically don’t let you do anything accept make good products and sell them.” The Tied House laws were “intended to create a level playing field for everyone to compete on” in the 1933 California constitution that came about in the aftermath of Prohibition.

Roger Hanney speaking about the Tied House laws

While Hanney spoke a little about certain laws, such as the credit law, which guarantees you get paid within 30 days for the alcohol industry (“when you didn’t have a credit law, you could manipulate your suppliers”), stocking and shelving law (which allows you to move around your products on shelves, but not competitors’ products), and social media laws (which are new, yet “we’ve got a long way to go to bring the laws up to speed”), his focus was on the free goods laws. Calling the free goods law “the granddaddy of all Tied House laws”, he further described it as “the glue that holds the Tied House laws together.”

Basically, the free goods law makes it so that breweries “can’t give anything away to anybody” – neither gifts, premiums, nor free goods. All of these laws written in the spirit of Tied House does not allow for loopholes, pointed out Hanney: “unless a provision of law says you can do something, you can’t do it.” While there may be certain exceptions in the law, they have to be spelled out, which Hanney said is “fundamentally important to understanding it.”

While this can seem hampering, Hanney did point out how helpful this can be for breweries, as some might be tempted to give away free stuff to wholesalers. However, while this can yield a short term gain in a brewery’s relationship with the wholesaler, it could be a long term loss with them, as they will come to expect free goods. “One thing I want you to understand is that you cannot get your foot in the door” with a wholesaler by giving away free stuff. “If you give away a beer placement, you’ll be out of” the business, as retailers will expect more freebies, but if you don’t keep giving them for free, they won’t give you a tap handle, etc. Hanney advised those in the audience to simply “go out, sell and market your beers, but don’t give it away,” since, otherwise, “it’s a death spiral.”

Hanney also spoke about events and permitting: “a common issue we have nowadays is the interpretation of these brewery event permits.” For instance, “if you have a restaurant on your brewery premises, you can sell all wines and beers, regardless of source” although “if you only have a taproom, you can only sell beers you have produced or owned the brand.” When it comes to private events at breweries, what constitutes a private event? It’s not a private event, Hanney pointed out, if attendees can purchase tickets; private event means just that – private. All beer and wine for a private event needs to be bought from a wholesaler, unless, of course, a brewery is hosting the event, they can use their beer, but “any other products at an event must be purchased though a wholesaler.” Furthermore, one can’t even let someone in with a bottle of spirits – all of it needs to be purchased through a wholesaler.

Roger Hanney speaking about the Tied House laws

While Hanney said that “I’m not going to talk about the special events law – you probably have been hit over the head with it,” he did talk about some aspects of hosting events. “Who’s the licensee?” for an event is a fundamental question you need to ask: is it a non-profit event? Is there a concessionaire? Is it a caterer? There are two ways they can be permitted: a contest sponsored by a supplier or public service activities. For a contest sponsored by supplier, that means something where people are trying to win (bowling, race, etc.). So, if it’s a contest, a brewery can only make a monetary contribution to that activity, which is “pretty restrictive” – since it’s only money and it can only go to an association – bowling, etc. for benefit of bowling, whatever. However, they can give you advertising in return, but not in a quid pro quo fashion. For public service activities, they have to be an event sponsored by a non-profit – “your opportunities open up, because you can supply and furnish to these groups that have a license” and a brewery can provide advertising support, although “no such services shall be given for the benefit of a permanent licensee” (such as a retailer).

Answering the question about furnishing novelties to non-profit groups, it is tough, since there is limit of giving away goods valued at $3 or less. One way to get around the law is to make a monetary gift to the non-profit (without quid pro quo) and for them to but the goods and for the non-profit to give them away. But the breweries cannot give them away.

Hanney also mentioned that the ABC district offices who enforce these laws all do it differently. Amongst the 27 district offices, they all have district administrators, who interpret the laws according to how they see fit. So, brewing in one district can yield different limitations than brewing in another. Hanney strongly advised that if one gets okayed for doing certain activities from one’s district office, to keep the records and to maintain a paper/digital trail just in case they come back to you and tell you it’s a problem. ABC district offices are best worked with proactively, noted Hanney.

In discussing these laws, Hanney said that, while there are a lot of restrictions, “always remember: there are ways you can do things legally; it’s just how we do it legally.”

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